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Hello, everyone. My name is Akio Yoshida, President of Aeon. Thank you very much for participating in today's results briefing.
Given that we are currently experiencing extremely significant and sudden changes in the business environment, the likes of which we have never seen before, I'm attending this quarterly results briefing today because I want to accurately communicate our understanding of the present conditions surrounding the Aeon Group, even though I usually only attend the half yearly briefings. Our Chief Financial Officer, Hiroaki Egawa, will be reporting on the initiatives and details of our financial results in the first quarter.
To begin with, you could say that the first quarter of this fiscal year was a crossover period. Businesses impacted by the headwind of the COVID-19 pandemic started recovering while businesses that had received a tailwind from the pandemic no longer benefited and turned downward. It was also a quarter during which we had a clear picture of rising commodity prices and signs of inflation. Right now, higher raw material prices and energy costs are being exacerbated by exchange rates. But even as inflation continues to rise sharply, heightened consumer sentiment in anticipation of the end of the pandemic is actually leading to so-called revenge consumption.
On top of this, we were hit with a heat wave that was so fierce, you could even call it a meteorological disaster. These 3 factors more or less overlapped in the first quarter. As a result of such major changes in the market environment, the lifestyles and buying behavior of customers are being transformed. Given the higher cost of living, households are trying to limit their spending on daily necessities as much as possible. But at the same time, spending money on items to beat the heat is an unavoidable expense.
As for the so-called revenge consumption, even though people are limiting their spending, we think they're clearly choosing what to spend their cash on. For example, there are certainly not skimping on costs related to the things they went without or activities they couldn't do during the pandemic, as well as the places they couldn't visit. Taking into account this kind of consumer sentiment, we think customers will be even more discerning about what shops they visit or what products they buy going forward.
We think customers will be attracted to companies that are able to accurately gauge their needs in this market environment and can proactively propose goods and services that are of interest to them. That is why we need to properly identify the factors behind change, including people's increasingly cautious customer spending, revenge consumption in a postpandemic market and unavoidable measures for combating the stifling heat.
Meanwhile, in terms of costs, our bottom line is under considerable pressure. For example, the cost of electricity in this first quarter rose 30% year-on-year and is already having a major impact on management. Abnormal weather has continued recently. So in order to address that as well as the fierce heat of the summer, we plan to establish detailed standards for the entire Aeon Group and spare no effort in reducing the amount of power we consume.
As for rising energy costs, we don't see them coming down anytime soon, and that goes for electricity fees as well. So we will look to plan and adopt long-term measures. At the same time, we will absorb the impact of these costs on management by controlling overall SG&A expenses.
Next, I'd like to touch upon first quarter financial results. We managed to achieve growth in both sales and profit, which was more or less in line with our forecast at the start of the fiscal year. In particular, earnings improved sharply in the General Merchandise Store Business, spearheaded by Aeon Retail, which had many challenges prior to the onset of COVID-19, and which struggled during the pandemic to overcome them.
Also, earnings improved strongly in the ASEAN Business, which was also significantly impacted by the pandemic. The emergence of revenge consumption from April onwards, in particular, drove a recovery in sales. Ultimately, we achieved record high levels at each profit line in the first quarter.
That said, we are by no means optimistic because, as I mentioned at the start, we expect inflation, exchange rate impacts and higher energy costs to linger for some time to come. We believe we must systematically overcome the negative impacts on operational efficiency, electricity fees, raw material prices and exchange rates. At the same time, we will look to engage in sales activities that focus on the positive aspects of the rapidly changing consumer environment in an effort to achieve our stated targets.
Hello, everyone. My name is Hiroaki Egawa, and I'm the Executive Officer in charge of Finance and Business Management. I'd like to present an overview of our first quarter financial results.
In consolidated results for the first quarter, we achieved record highs across the board. Operating revenue was JPY 2,203.2 billion, up 2.3% year-on-year. Operating profit was JPY 43.8 billion, up JPY 4.7 billion. Ordinary profit was JPY 44.3 billion, up JPY 4.0 billion. And profit attributable to owners of the parent was JPY 19.3 billion, up JPY 14.3 billion. Also, the column on the far right shows the impact of the application of the revenue recognition accounting standard.
Here, we can see 4 years of earnings from the first quarter of fiscal 2019 before the pandemic through to the first quarter of the current fiscal year. You can see that in all graphs, we have surpassed pre-pandemic earnings to achieve record highs. In the first quarter just ended, an increase in the unit price of electricity, mentor utilities expenses on a consolidated basis rose by more than JPY 10 billion. This is higher than what we initially anticipated.
But by pursuing total cost controls, mainly by curbing personnel expenses with the use of productivity improvement measures at stores and in back-office departments by efficiently managing advertising expenses, by leveraging digital marketing and due to a recovery in our top line, we were able to absorb the JPY 10.0 billion increase in post profit growth.
Also in the first quarter, we booked a gain of JPY 23.6 billion on the sale of Ministop Korea. This gain on sale boosted net profit by JPY 12.2 billion. But even if we were to strip out this one-off impact, net profit would still come to JPY 7.1 billion, thus indicating that our bottom line is steadily improving. Next, let's take a look at earnings by segment. The biggest improvement in profitability in the first quarter was in the General Merchandise Store Business. In fact, this is the first time since fiscal 2013 that the GMS Business has achieved operating profitability in the first quarter. Alongside the GMS Business, the Services and Specialty Store Business, which was hard hit by the impact of COVID-19, also returned to profitability on the back of a JPY 4.0 billion improvement in operating profit, while the Shopping Center Development Business also posted profit growth of JPY 2.2 billion. Together with the International Business and the Health and Wellness Business, we recorded profit growth in the 5 businesses. Operating profit declined in the Discount Store Business and the Supermarket Business, but still remain in the black. Operating profit declined by JPY 6.3 billion in the Financial Services Business, but still came in slightly higher than our initial forecast.
In terms of which segments performed well and which didn't, the Financial Services Business slightly exceeded our expectations, while the Supermarket Business underperformed somewhat. All of the other businesses were more or less in line with our forecast. As a result, consolidated earnings overall were on par with our projections. With the following slides, I'll discuss the situation in each business segment.
First, the General Merchandise Store Business. The graph on the left side of this slide shows segment profit in first quarters from before the pandemic in fiscal 2019 through to this fiscal year. Profit has returned to the black for the first time since fiscal 2013. The main reason for this is the revival of Aeon Retail, the core company of the GMS Business segment. Over the last 2 years, Aeon Retail focused on establishing a foundation for growth, tackled issues head on and undertook structural reforms in the shape of inventory reductions, fixed cost cutting and a switch to variable costs.
As you can see in the bottom right of the slide, inventory was reduced to around JPY 100 billion from its pre-COVID level of more than JPY 170 billion. The turnover rate improved and personnel expenses were lowered overall despite rising unit labor costs. Even though sales opportunities receded during the pandemic and we faced headwinds from various cost increases, these ongoing structural reform measures yielded results and transformed the earnings structure of this business. As a result, the business recorded sharp profit growth in the first quarter and a return to profitability.
This slide shows an analysis of factors behind first quarter profit growth at Aeon Retail. On the left-hand side, you can see plus JPY 4.9 billion, minus JPY 2.0 billion and plus JPY 6.9 billion. These figures represent the year-on-year difference in gross operating profit, SG&A costs and operating profit, respectively. Aside from the impact of business transfers and the change in revenue recognition standards, we are trying to compare results under the same conditions as much as possible.
A recovery in sales and improvement in the gross profit margin were the primary factors behind the improvement in gross operating profit. The biggest contribution to sales came from a recovery in the apparel category. Sales outstripped the year-earlier level in the food category, too, as the movement of people picked up again and the large stores leverage their strengths of extensive product lineups and the power to attract customers.
In responding to the major changes in customer needs during the pandemic, over the past 2 years, we have strengthened our lineup of products. For instance, in the apparel category, we have added more casual clothing. In the food category, we have improved delicatessen goods. In the health and beauty care category, we have enhanced prescription drug services. And on the sales floor, we have allocated more space to pet products and the like.
We think these efforts are reflected in first quarter results. Also, we have continued to record double-digit sales growth in the Online Supermarket Business, with sales increasing 16% year-on-year in the first quarter. This is due to an increase in the stores offering online shopping and expanded capacity over the last 2 years, as well as measures focused on expanding fresh food and delicatessen product offerings.
The gross profit margin also improved 0.6 percentage points in the first quarter as a result of the measures I talked about on the previous slide, along with sales growth in these growth categories. And we successfully reduced SG&A costs by JPY 2.0 billion, because the current structural reform similarly implemented in past years have come to fruition, and we managed to absorb rising utility expenses by keeping a lid on personnel cost. Next, let's look at the Supermarket and Discount Store businesses. The graph at the top right of this slide shows sales in the first quarter. Price per item, which is the blue line, remains high, while the number of items being purchased, the gray line, is falling. We think the decline in the number of items purchased is the result of not only slowing dine-in demand, but also people's increasingly cautious consumer spending as a result of inflation. Even though the dotted green line shows a small fluctuation in customer traffic, because it has remained below the year earlier level, sales overall, as shown by the blue columns, have trended downwards month after month since March.
Looking at the trend in segment profit on the left side of the screen, you can see it has declined compared to fiscal 2020 when special demand for dining in was at its peak and also in comparison to fiscal 2021. But when compared to the first quarter before the pandemic it has increased from a loss of JPY 1.6 billion to a profit of JPY 3.4 billion, which represents an improvement of JPY 5.0 billion. This improvement in operating profit breaks down to a JPY 1.9 billion boost from the consolidation of Fuji and a JPY 3.1 billion profit improvement at existing businesses.
Compared to fiscal 2019, sales in this segment overall are up 3.8%, thanks to efforts aimed at capturing and entrenching dine-in demand. The expenses ratio has also been reduced by 0.6 percentage points on the back of regional management integrations, the rollout of self-checkout registers and the promotion of digitalization, among other factors.
The next slide is the Health and Wellness Business. The graph at the top right shows sales trends. Looking at the blue line in the middle, you can see that sales in the prescription drugs category are growing. In addition to prescription drugs, sales of cosmetics have also increased because people now have more opportunities to go out. Furthermore, sales have also risen for pollen allergy-related products, pharmaceuticals such as fever and pain relief medicine that coincided with vaccinations and testing kits. Sales of these high-margin products have grown. Also, we are continuing to actively increase the number of drug stores capable of processing prescriptions and open new stores.
Next, the Financial Services Business. Segment profit has recovered to be just shy of the pre-pandemic level. At the top right of the screen, you can see earnings by area for Aeon Financial Service. Overseas profit growth was due to a top line recovery and cost control efforts. In Japan, profit declined on the absence of the JPY 2.5 billion gain on the securitization of receivables booked in the year earlier period, stepped up marketing for growing the credit card business and investments in IT. However, these factors were already factored into our initial forecast. So compared to plan, the first quarter result represents a steady start. The table at the bottom of the screen shows the sectors in which credit card shopping transaction volume is growing. Transaction volume is increasing in the sectors that struggled during the pandemic, namely travel, leisure and entertainment and transportation. That said, it is still only around 50% to 70% of pre-pandemic levels in the travel and transport sectors. So there is potential for further growth ahead. To the right of that table is a graph that shows quarterly trends in the balance of cash advance loan receivables in Japan. Compared to the preceding fourth quarter of last fiscal year, the balance has bottomed out and turned upwards. We, therefore, expect to see cash advances also enter a recovery phase going forward.
Next, let's look at the Shopping Center Development Business. Segment profit fell short of the pre-pandemic level, but it is steadily recovering. Looking at Aeon malls by country, you can see that Japan has improved month-on-month. It may look like sales dipped in June, but there were 2 less holidays compared to the same period in fiscal 2019. So if that impact was excluded, sales would be roughly the same as in May. Although sales have not yet returned to the levels of fiscal 2019 before the onset of COVID-19, our initial forecast for this fiscal year called for a recovery to fiscal 2019 levels in the second half. So we are hoping for a gradual recovery over the remainder.
In China, COVID-19 infection started wreaking havoc again in January, and some malls were temporarily closed. Consumption also plummeted due to the enforcement of strict lockdowns. However, sales picked up again from April, and preliminary figures indicated June sales have rebounded to 92.4% of the pre-pandemic level.
In Vietnam, the government switched to a policy of prioritizing economic growth. And in the January through March period, which is the first quarter there, sales were up year-on-year and a brisk 45% above the pre-pandemic level. Sales have remained firm since April. And going forward, we expect to see sustained double-digit growth versus the same period prior to the COVID-19 pandemic.
Next, the Services and Specialty Store Business. The performance of this segment also didn't reach the prepandemic level and the degree of recovery at each company in this segment varied somewhat. But overall, sales increased month-to-month, which meant profit returned to JPY 2.8 billion from a loss in the same period last fiscal year. In particular, the slide you see now shows the improvement in earnings at Aeon Entertainment, the group company that operates Aeon Cinema.
There was a big recovery in the number of new releases and moviegoers in the quarter, which translated to a sharp recovery in profit that was previously hard hit by the COVID-19 pandemic. The increase in customer traffic at Aeon Cinemas is also generating group synergies and contributing to greater customer traffic at Aeon Malls and other group companies.
Next, let's turn to the International Business. Here, we recorded segment profit of JPY 2.8 billion. The year-on-year profit growth breaks down to a decline of JPY 0.2 billion in China, where the impact of COVID-19 delt a heavy blow to earnings; and growth of JPY 0.8 billion in ASEAN countries, of which JPY 0.6 billion came from Aeon Vietnam. This sharp profit growth in Vietnam was attributable to brisk double-digit year-on-year growth in same-store sales and efficient control of expenses.
We have also been opening supermarkets nearby existing general merchandise stores so as to supply fresh produce and delicatessen products from those general merchandise stores. This new initiative aims to enhance the appeal of our product lineup. I'd now like to talk a bit about our Topvalu product strategy. Considering that household budgets are under pressure from rising prices for various food products and electricity fees, among other things, last September, we placed a freeze on Topvalu prices in an effort to help stabilize prices for customers. As a result, we made progress on brand switching from national brands to Topvalu, and sales for Topvalu overall increased 5% year-on-year.
As you can see on the top right of the screen, sales of Topvalu products grew 24% and the sales weighting rose nearly 4% year-on-year in the major food categories in which raw material prices are rising, such as cooking oil, mayonnaise and coffee. Accordingly, we've been able to keep the combined markup ratio for private brand and national brand products flat year-on-year in the mainstay categories because the weightings of private brand and national brand products are changing at a time when raw material prices are climbing higher. Meanwhile, sales in our value-added series, Topvalu and Green Eye, are also growing.
Our healthy protein series, certifying sustainable fishery products and organic produce, et cetera, have all been well received by customers. The sales growth in value-added products is also helping to boost profitability. The impact of higher raw material prices will likely continue up ahead, but we will continue to do our utmost to absorb the impact on earnings and secure profitability by improving the markup mix with a higher private brand weighting and ramping up our development and sales of value-added private brand products to create new value.
Lastly, our earnings forecast, which we have left unchanged from the start of the fiscal year. Our first quarter results were more or less in line with our projections. There is no room for optimism from the second quarter onwards because we anticipate further rises in the cost of raw materials and utility expenses. But the Aeon Group will work together as a team to employ various measures designed to absorb such cost increases as we set our sights on achieving our full year forecast.
I have 2 questions. First, I agree that in the midst of various challenging conditions, you must proactively approach consumers with new proposals. Given the diverse range of consumers, what specific price and product strategy should Aeon include in its approach to consumers, including at large shopping malls that are now rebounding strongly?
My second question is related not only to rising electricity fees but also to all other energy costs as well as distribution costs. Your company has been making sustainability efforts for some time now and has implemented various reforms, including the Online Supermarket Business, that will be launched with Ocado next year. Given currently rising costs, do you see a need to accelerate your efforts to reform distribution and take other actions to mitigate the rise in energy and other costs? Also, what countermeasures do you plan to take to deal with the abnormal situation you are currently facing?
Regarding your first question, we expect customer consumption to become more bipolar. We do not think the customers will be divided into 2 groups, but that each individual customer's consumption will take on a bipolar nature. We think people will separate the product they want to spend their money on from those that they will reduce spending on. For example, Topvalu made various efforts to hold down prices of daily necessities that are absolutely necessary to people's lives. Customers probably wanted us to hold down the cost of such items as much as possible. This is because the so-called angle coefficient would go up. On the contrary, looking at products included in so-called revenge consumption and revival consumption, there are a number of product groups that did not sell at all or saw their sales fall by 50% last year and the year before.
The pandemic virtually eliminated sales of products like swimwear, yukata and suitcases. We now need to return to the starting line and approach customers by proactively expanding the variety of such products offered. Last year and the year before, we did not put swimsuits or yukata in our stores. Resuming sales of such products this year means we must make proposals that once again present customers with a choice of which stores to shop at. Many products fall into this group, and I think the customer purchases will be based on value offered more than price.
With COVID-19 cases rising once again, the situation may change around this year's Obon holiday season. But for now, people's mobility is not subject to any restrictions. If that condition holds, people who have hesitated to leave the city and visit hometowns will be more mobile this year and will make purchases needed for their trips home. When buying gifts, bought for friends and family one has not seen in a long time, people think more about the recipient than the cost of the gift. We need to understand exactly how to take advantage of such consumption and make appropriate proposals. Regarding costs in your second question, this issue has been high on our priority list for some time now. We are proceeding with business integration in each area, and we are grouping supermarkets by area into large clusters. Considerable cost reductions can be achieved through scale expansion. For example, logistics that until now has been done by individual companies can be reorganized into a logistics network by increasing the size of the clusters, which will see a reduction in logistics costs. Processing centers are not cost effective when handling small lots. But if the clusters are a certain size, it is possible to significantly lower cost by producing and delivering delicatessen products entirely by one center. Purchasing by clusters of a certain size also provides economies of scale. These are some of the areas where we need to be more aggressive.
As for energy costs, the performance of energy-saving equipment is improving each year. For example, we are now seeing refrigeration cases capable of the same performance as previous cases, while using considerably less electricity. Looking at the longer-term trend in electricity fees, we must be more aggressive in switching to more energy-efficient equipment as soon as possible. In addition, given our large number of stores, the energy-saving efforts made by our employees while carrying out their daily routine work can make a big contribution to reducing energy costs. We have accordingly established related rules that are now in effect at our stores.
I have 2 questions. The first is about your private brand strategy. You've deferred raising prices several times in the reason past and plan to continue to do so from July. However, you evidently have had to raise the price of a small number of products. Given the current consumption environment, do you think you should continue to hold down prices in the second half of this year? In addition, the overall markup ratio of national brands and private brand products remained flat from last year. Did the private brands cover the decline in national brands? Or did the private brand remain flat? Also, can you provide us with a breakdown? That concludes my first question.
Next, my second question is about the acquisition of [ Hallows ] shares from Maxvalu Nishinihon and ORIX that you announced today. Please explain the reasons behind and the strategic implications of this acquisition?
Regarding your first question, our product manager explained our view at a press conference in June. Basically, if sales prices cannot be maintained despite our efforts in various areas, including packaging materials, distribution and lot recombination, prices will be raised after notifying customers at the store. Basically, we will make every effort possible to avoid having to raise prices. We want to limit the number of items that require price hikes as much as possible. When price increases become unavoidable, we will raise them after making the proper notification to customers, and we will keep the price increases as small as possible.
As for our thoughts on pricing, the number of customers who know about and want to try Topvalu brand products is increasing. We are selling not only private brand products with low prices, we are also selling value-added private brand items. This improves our price mix. We were able to sell our private brand products at a higher markup ratio than national brands because we control the upstream manufacturing method. Customers who had not purchased top value products previously are starting to buy them as they become aware of product quality and want to try more Topvalu products. This is a big factor.
Customers are shifting to Topvalu from similar national brands whose prices keep rising. The current extraordinary rise in the cost of living is making people more conscious of the need to keep costs down. Our Topvalu products are the primary reason people decide to shop at Aeon stores. In addition, customers who come to the store, for example, during a heat wave like this one, will purchase a variety of products to counteract the heat, which they can buy together when they come to buy Topvalu products. This increases customers' purchasing rate and the unit price of purchases made. This essentially is the framework we seek to create for our private brand products. I believe that from a profit perspective as well, we need to keep introducing new Topvalu products that will be liked by customers who will then purchase other higher value-added items. In the first quarter, the markup ratio for the overall margin mix was flat. As for the difference between national brands and private brands, has the situation been tougher for national brands, simply put, yes. Sales volumes are declining as prices continue to rise. As for your second question, Maxvalu Nishinihon had already acquired shares of [ Hallows ] through a variety of previous circumstances. As previously explained, this year on March 1, Maxvalu Nishinihon became a consolidated subsidiary of Fuji. Fuji retailing and Maxvalu Nishinihon have been placed under the umbrella of holding company, Fuji Co. Ltd., to speed up the realization of the integration effect. To increase the capital that will be needed for our future growth strategy, Aeon purchased the shares of [ Hallows ] on the premise of making it a long-term group holding.
Fuji eventually became a member of the Aeon Group. Do you anticipate the same for [ Hallows ] as part of Aeon's effort to increase its market share in Western Japan?
Nothing has been decided at this time and nothing is under consideration.
I have 2 questions. My first question is related to profit improvement and then we turn to the black in the General Merchandise Store segment, especially Aeon Retail. In particular, you are reducing SG&A expenses, including personnel expenses. When I shop at your stores, I get the feeling that you are progressing with personnel reductions around the cash registers. What specific measures are contributing to this reduction? I also think structural reforms have reduced in-store operating costs and headquarters costs, but is this sustainable? Are current conditions favorable for generating profit if a top line recovery is achieved while also continuing to hold down costs? Or is the recent cost reduction due to the delayed posting of expenses due to pushing back investment in store renovations and other similar factors? My second question is about Topvalu sales. Overall sales growth was 5%, with products that appeal to consumers on price growing in particular. However, can you tell us what Topvalu products are not selling so well or are not popular with customers? And how do you plan to boost sales of those products in the future?
Regarding your first question, Aeon Retail's return to the black reflects the positive impact from the structural reforms undertaken over the past 2 years during the COVID-19 pandemic. We have lowered SG&A expenses by reducing personnel expenses. One easily noticeable improvement is the increase in productivity due to digitalization, such as the use of Regi Go. Cash register personnel account for about 30% of store personnel costs, and we were able to use Regi Go to support cash register operations. Increase of checkout using Regi Go has reduced cash registered staff hours. That has enabled store staff to devote more time to customer-oriented services, such as product explanations and proposals that add value and will contribute to raising the top line.
At the head office, routine process automation has improved the productivity of routine tasks such as accounting and human resource operations. Structural reforms are underway, and we are confirming their progress. When the top line improves in the future, profit should become easier to achieve. This is not a temporary reduction in expenses, such as a shift in the expenses accounting period, but a structural change. As for your second question, Topvalu products are divided into 3 categories: the yellow label TOPVALU BESTPRICE products, red-labeled mainstream and conventional Topvalu products, and green label Topvalu Green Eye products, BESTPRICE Topvalu's price fighter category that includes strategically priced products and has become popular with customers as we have deferred price increases. Green Eye as well as the organic and free-form series are growing very well in the health part of so-called health and wellness, especially as consumers' health consciousness has increased under COVID-19.
However, I see some issues with our mainstream value-added Topvalu products. We must strengthen the category by reconsidering what kind of value needs to be added to the products to win greater customer support. Products cannot have contents and labels similar to national brand products. We must use different packaging and content to differentiate our Topvalu products and make them stand out as a different brand.
For example, from a convenience perspective, we offer a low-calorie frozen lunch that provides customers with a meal that includes hot vegetables and meat on one plate. Enhancing our mainstream Topvalu products from various perspectives will add to our corporate strength. As many people are now aware of our Topvalu private brand, I think we now must implement a private brand strategy that will get these customers to buy more of our mainstream and Green Eye products.
I think Aeon previously said it plans to differentiate itself by reforming its supply chain and building a strong product lineup. However, should we now understand that you plan to focus future efforts on the Topvalu mainstream category or that you will challenge expanding sales of certain products that have stronger growth potential?
In March, we launched our new premium draft beer in the red label Topvalu mainstream category. Very reasonably priced compared with similar premium national brands, premium draft beer sales have reached 400 million cans in just 3 months. The new beer has been recognized as a value-added product that is different from national brands. Launched as an original product that does not imitate any national brand, premium draft beer has won the support of consumers. Future product launches must take the same approach.
I have 2 questions. First, the number of COVID-19 infections is rising rapidly once again. Does the current level of new infections not cause you much concern? I believe your earnings forecast assumed that the number of infections would rise again from this autumn and that you factored in a certain increase. If the number of infections does rise, are you prepared to respond flexibly and capture COVID-related demand?
Secondly, the online supermarket did well in the first quarter and sales remained strong even as the pandemic has subsided somewhat. Is there something specific that you are doing? Or is there some change in customers' purchasing habits that is supporting stronger sales? Also, can you give us a breakdown for your JPY 1 trillion in digital sales target? Can we assume that collaboration with Ocado in e-commerce will generate about JPY 600 billion of that target figure with the rents coming from other sources?
Regarding your first question, as you noted, our earnings forecast assumes that a new wave of COVID-19 infections will hit again from this summer to early autumn. But we also assume that another state of emergency will not be declared even if strong measures are taken to prevent the spread of infections. We assume some increase in infections will occur, and we will respond appropriately based on lessons learned as we dealt with various circumstances over the past 2 years. Regarding your second question, on a global comparison, e-commerce still accounts for a small share of sales in Japan. Our Online Supermarket Business accounts for about 3.5% compared to double digits in other countries. I therefore think we will still have plenty of room for growth. However, online demand has increased sharply during the pandemic, leading to sudden sales growth in some areas. While we may see online sales fall back a bit, the uptrend in online sales will continue.
In addition, our online business includes not only food, but apparel and housing and recreational products as well. Since online supermarkets allow a direct contact point with customers, I think we need to establish one-to-one contact with customers and offer individuals a variety of merchandise, from undergarments and daily necessities, to housing and recreational products. We do not plan to restrict our Online Supermarket Business to food alone.
So there is no particular image for the composition of your JPY 1 trillion target for online sales? I think you used to say that sales using the Ocado center would be about JPY 600 billion.
We have a composition in mind and the Ocado project will account for a certain share. The digital sales target of JPY 1 trillion is positioned to account for about 10% of total sales. We, therefore, are establishing an online shopping framework that will eventually account for 10% of our overall sales. The Ocado project is part of that framework.
Our Online Supermarket Business will increase its share of online food sales by promoting shipments from warehouses as well as from stores. Food sales will be the biggest portion of our online sales. The rest will come from the general merchandise stores, online sales of apparel and household and recreational products, and from companies in our Specialty Store Business. I want to achieve the 10% sales composition target by generating online sales over multiple formats.
I have heard that the Ocado customer fulfillment center, CFC, being built in the Chiba Prefecture town of Honda will start operation next year. How many CFCs are you planning to build? Also, how will this large investment in the fees paid to Ocado affect Aeon's profitability?
We have announced a second CFC to be built in Hachioji. The Honda CFC will be operational next year, so decisions about additional CFCs must wait until we see how things go in Honda. The CFC is an equipment-intensive facility, and initial investment is, therefore, quite large and will take some time to recover. However, with labor costs expected to continue rising, it will be difficult to rely on human labor alone. The center's use of robots will enable it to operate 24 hours a day. Store operations, meanwhile, are limited to business hours. Our calculations take into account such productivity. [Statements in English on this transcript were spoken by an interpreter present on the live call.]